Friday, December 2, 2011

A typical Republican response to evidence of the value of government is, yeah, and what about this one time there was waste! I mean you could talk about the polio vaccine, and they'd say, yeah, and this one guy in Salk's laboratory stole office supplies and used to sleep in the back room. You could talk about how the passage of Social Security (which they fought tooth and nail; it was the death of freedom circa 1935) turned senior citizens from by far the biggest group in poverty to the smallest, and they'll say, yeah, what about this guy who got it fraudulently at age 58.

This should be obvious, but if you're ending anything because you can find some waste in it, you might as well kill yourself right now, because there will be nothing left and you'll starve. In every large endeavor you'll find some waste. You could take the most successful private company in the world, Apple, Sony, you name it, and you find tons of examples of waste; employees watching porn on their computers, sexual harassment, lavish corporate jets,...

The particular example that set this off is a post by Brad Plumer at Ezra Klein's Wonkblog. It shows how slashing of government employees in some areas cost far more than it saved. In the comments we see responses like, yeah, "Using the SEC and the minerals office as examples - where porn was viewed thousands of times as the economy crashed?"

As liberals, and just intelligent people, we have to make an effort to call out these ridiculous -- but pulling at the emotions -- arguments from Republicans whenever we hear them. You don't throw away all of the valuable, or essential, meat just because there exists some fat. I don't decide not to send my daughter to college because there was the Penn State scandal. I don't throw my Vanguard portfolio in the trash as worthless because my cousin knows this one guy who works there who played computer games on the job.

Sunday, November 13, 2011

Nonetheless, higher income inequality will increase the appeal of traditional mores — of discipline and hard work — because they bolster one’s chances of advancing economically.

Let's be clear here:

Severe income inequality DECREASES, not increases, the chances of the poor and middle class to get ahead, not that Libretario Cowen would care much; as an extreme libertarian he'd rather have massive suffering, loss, and decreased growth rather than give up even a tiny amount of personal freedom.

It DECREASES the chance to get ahead when you have to work 40 hours per week while going to college full time, thus having far less time to study, learn, and succeed. Studies have shown that this substantially reduces the odds of graduating, as well as learning, and GPA. But, hey, let's cut college aid even further, so we have even more income inequality!

It DECREASES the chance to get ahead when poor – and middle class – children have no health insurance, so they grow up sicker, and more poorly developed mentally and physically, and when their mothers can't afford to spend the time to breastfeed due to work, or to buy and cook the healthier foods, whole fruits and vegetables. Or when they have to live in more and more polluted areas because of Republican deregulation. But, hey, no problem, the rich can afford to move away from the pollution. It's only the children of the poor – and middle class – who as a result will be sicker, dumber, and more likely to suffer from behavioral problems.

It DECREASES the chance to get ahead when poor and middle class children can't go to pre-school because their parents can't afford it, or they can only afford day care which just sits them in front of the TV because that's a lot less time consuming and expensive than teaching.

It DECREASES the chance to get ahead when little regulated for-profit schools can prey on unknowing young people with promises of great careers from substandard education that does little to increase earnings, but costs 10 times as much as GOVERNMENT community colleges, and is financed with loan shark private student loans that can quickly grow exponentially so they're impossible to ever pay off, but thanks to the Republicans can never be escaped in bankruptcy – Welcome back indentured servitude! Always nice to ruin lives before they can even get started, and the poor kid has any idea even what's going on. But hey, Pure Free Market! And better to ruin a billion lives than give up even one micron of personal freedom, right Libretario?

But does this "increase the appeal of traditional mores — of discipline and hard work", as Libretario says? Taken to this kind of extreme, especially for the poor, it can do the opposite, because it can increase hopelessness, people just giving up and turning to crime and an underclass mentality, people just thinking why try.

Remember, it may not be nice and simple, but the reality is that lots of things graph U-shaped, or upside-down U, not simple straight line, always increasing or always decreasing. A certain amount of income inequality increases discipline and hard work, but at some point it gets so extreme that things just look too daunting or herculean for most, hopeless and rigged, and then effort, and a belief in the payoff of hard work, starts decreasing.

You increase discipline and hard work, and achievement, overall, by giving people the means to succeed and clear, reasonably realistic looking, routes to success. Make college more affordable (a lot more), give all children healthcare and truly nutritious school breakfasts and lunches, and quality pre-school and daycare, give middle aged mothers and fathers who have made mistakes, or just had no idea of how important education was when they were kids, but want to work hard now and turn it around, the realistic possibility of going back to school and getting a college degree, without making it a herculean task that few will attempt, let alone succeed at.

Do these kinds of things, and then you'll see both more effort AND more success, because effort is a lot more productive if you provide tools and resources to go with it, and you get a lot more effort from most people if you make the goal look realistically achievable, not a daunting, or herculean, task. Yes, some people will take on daunting or herculean tasks; they won't shy away, and they will work themselves to the bone, and may succeed. But do you want only this minority of people to get ahead and do well, and screw the majority, or do you want to make the high return investment to make the majority highly productive and financially comfortable too?

Of course, Libretario, you don't actually care, if it means giving up even a speck of personal freedom.

Saturday, September 10, 2011

One important benefit of sharply progressive taxation that I haven't really heard much is that it makes the rich a lot less capable of controlling, corrupting, and perverting government with massive legal bribes, I mean donations. Importantly, as well, the middle class has a lot more money to donate to compete with the rich.

With a sharp increase in the progressivity of taxes (all taxes, including state and local), the rich become less capable of controlling and corrupting government, making it a lot less efficient. Thus, the increase in progressivity makes government more efficient, increasing confidence in government along with its performance, creating a virtuous circle of government confidence and performance. At the same time, the rich have a lot less money to fund the right wing propaganda machine, thus it becomes a lot less able to grossly distort people's image of government's efficiency, usefulness, and importance, so again more confidence in government. And this leads to greater public investment and insurance, which greatly increases long run growth and total societal utility, with the gains widespread, instead of only at the top.

It looks like such a virtuous circle may have occurred in the early part of the 20th century. The top marginal income tax rate went from 7% in 1915 to 77% just three years later! This was shortly followed by the New Deal, unprecedented levels of professionalism and efficiency in civil service, and respect for it, a golden era of high and evenly spread growth, the birth of the great middle class, widespread and easy college access, the highest level of college graduates in the world (after a generation of Republican dominance we're down to 11th), Medicare, and Medicaid.

Sadly, with the generation of Republican dominance, the circle has been reversed, from virtuous to vicious. The top marginal income tax rate dropped from 70% in 1980 to 28% in 1988. The rich, with their great increase in wealth, gained ever more control of government, deregulated finance, and much else, lavishly funded a vast propaganda machine to slander government, slashed college aid and education (relative to inflation, population and/or it's fast growing importance in a high-tech world), slashed public investment and social insurance (as always relative to inflation, population growth, and/or growing importance/need), and we've had a generation of tragic decline, with the rest of the world catching up to us or passing us in many key areas. And income inequality has gone through the roof, with incomes for most stagnating or declining for a generation, and a third of the population 18-64 without health insurance at least some time over the last two years. In addition, the right uses it's money-fueled influence and electoral victories to degrade government whenever possible, then they say, see, government can't do anything well, which helps them to degrade it further, and the viscous circle continues.

Cornell economist Robert Frank gives one huge benefit of sharply progressive taxation that's little if ever heard, allaying monumental positional/context/prestige externalities; another big one is preventing the rich from controlling and degrading government.

Friday, July 29, 2011

So basically, we're risking mass financial havoc so that... John Boehner can remain as House Speaker, and not have to go be a lobbyist making way more money. That sounds like a bad trade-off for virtually in the world everybody except Boehner. (Boehner's family might even take that deal.)

It seems odd to me that, of all the potential pain we're contemplating here, the one sacrifice nobody seems willing to broach is John Boehner having to lose his Speakership and go be a lobbyist. Why is that?

It's really in large part a result of a generation of every-man-for-himself Republican dominance. Greed is always good; you do what's best for you. And there's been this kind of dominance in economics too over the last generation. It used to be much more economists would assume people only care about themselves as a simplifying assumption in most models. They understood it wasn't literally 100% true, and thank goodness. But now there's much more of an attitude among many economists, especially freshwater, that people should care only about themselves, and this is natural and good.

Of course it's not. When people really do think it's every man for himself, you always do only what’s best for you, trust breaks down. People will little be able to work together, and security, crime, monitoring, and contracting costs will explode. Forget about a super complicated high-tech economy with enormous increasing returns to scale when people can't come close to working smoothly together in vast highly intricate interconnected organizations because everyone knows everyone else will hurt them if they can get away with it, because you always do what's best only for you.

Why do you think altruism evolved? because a group of people who can trust each other and work together is far more productive and powerful than a bunch of individuals who all work alone because they can't trust each other.

Thursday, June 23, 2011

If the debt limit is not raised, and there's a government shutdown on steroids and amphetamines, and maybe a debt default after that, a big question is who the public will blame. The Republicans will have been the ones who voted against it, and who took America hostage to get what they wanted, but our press is so lacking, and asymmetric information is so bad, will most of the public understand that? especially with the Republican's billionaire backed propaganda machine.

The world is just so immensely advanced and complicated today, asymmetric information is just an enormous problem. It just really takes tremendous study to understand many issues in economics and government, and people have so little free time today.

One important solution is a better press, where the monumental positive externalities of serious analytic and investigative journalism are commensurately subsidized, but another huge one is try-and-see. We need to end the filibuster, for one, so we can have a lot more try-and-see to disintegrate Republican disinformation and really move us forward. Another thing is massive public campaign finance, and donation limits. With this kind of asymmetric information, we really need well informed and well intentioned representatives. Our legislators should be spending 80% of their time learning and studying to make good decisions, not 80% of their time raising money.

"Richard Serlin, who has made himself one of the world’s experts on Neil Wallace’s original paper, was good enough to agree to write a guest post..." – Miles Kimball, University of Michigan economist, and one of the founders of New Keynesian Economics

"Richard Serlin (HT Mark Thoma) gives the bottom line intuition of Wallace neutrality... " – Bruegal blog, EU economics think tank, considered one of the best in the world

About Me

I am an adjunct professor for the University of Arizona where I teach one of the largest personal finance courses in the country, with over 500 students per year. I hold an MBA from the University of Michigan and have completed all coursework and written exams for a Ph.D. in finance from the University of Arizona. I am also president and co-founder of Summit Personal Finance Education, one of the country's largest U.S. Trustees approved providers of a personal finance course, designed by myself, which meets the requirements for bankruptcy filers under the BAPCPA law of 2005.

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I edit and improve most of my posts after I initially place them. I will not hesitate to do this, and without cross-outs, as my main goal is to teach and discuss clearly and well, to help with understanding and good idea creation, not to leave a historically accurate evolution of my writing. In fact, if you think the writing of a post has clunky spots or mistakes, you might want to try looking at it hours or days later. These things may be fixed, plus valuable new material may have been added. My writing really tends to improve with seasoning.

I will, however, note if I have made a major change of opinion, or corrected an important mistake of fact that could be substantially harmful to a person or party. This is subject to interpretation, however. For example, if the post was up for two minutes before I fixed it, I may not write a correction note. Unless my blog traffic greatly increases, it's unlikely many people, or any people, saw it.